Standing Committee E

[Mr Peter Atkinson in the Chair]

Health and Social Care (Community Health and Standards) Bill

Clause 17 - Financial powers

Amendment proposed [this day]: No. 263, in 
clause 17, page 7, line 34, after 'money', insert 'only'.—[Mr. McCabe.] 
 Question again proposed, That the amendment be made.

Peter Atkinson: I remind the Committee that with this we are discussing the following amendments:
 No. 264, in 
clause 17, page 7, line 34, at end insert 'direct'. 
No. 18, in 
clause 17, page 7, line 36, leave out subsection (2) and insert— 
 '(2) The trust shall have no constraints on its right to borrow except as outlined in subsection (3)'. 
No. 161, in 
clause 17, page 7, line 36, leave out subsections (2) and (3) and insert— 
 '(2) The trust will have certain limits on its rights to borrow, as outlined in subsection (3). 
 (3) The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.'. 
No. 19, in 
clause 17, page 7, line 38, leave out subsection (3) and insert— 
 '(3) A trust's total borrowings shall not exceed 100 per cent. of its total revenues without the approval of the regulator.'. 
No. 146, in 
clause 17, page 7, line 38, at end insert— 
 '(3A) In calculating these limits, no regard shall be had to any borrowing incurred under the Private Finance Initiative.'. 
No. 21, in 
clause 17, page 8, line 6, at end add— 
 '(7) A foundation trust shall show the total value of all its liabilities on its balance sheet.'. 
For the assistance of Members, the selection list for tomorrow's sitting is now available in the Room. I remind the Committee that all questions necessary to dispose of proceedings on part 1 will be put at 7 o'clock this evening. If we have a Division in the House during this sitting, which we no doubt will, I will suspend the sitting for a quarter of an hour. If there is a second Division, I will suspend for 30 minutes, and so on.

Stephen Pound: On a point of order, may I apologise unreservedly to you, Mr. Atkinson, for not being present just before 1 o'clock to move the amendment that I tabled, which my hon. Friend the Member for Birmingham, Hall Green (Mr.
 McCabe) generously moved? Unfortunately I was being made up for Sky News at the time. It takes a long time to make me passably human, so I could not leave in the middle.

Simon Burns: Further to that point of order, may I seek your advice, Mr. Atkinson, on whether it is more important to be in a television studio or to attend to one's parliamentary duties in a Committee?

Peter Atkinson: Fortunately, it is not for the Chair to rule on that question. The Committee has heard the apologies of the hon. Member for Ealing, North (Mr. Pound), although the Chair of course deprecates occasions on which hon. Members are not present to move amendments in their name.

Chris Grayling: Welcome back to the Chair after recess, Mr. Atkinson. Those two points of order have given me the opportunity to pick up where I left off this morning, because a moment ago the Room was lacking Liberal Democrats, but now the hon. Member for Oxford, West and Abingdon (Dr. Harris) has arrived, so I can finish answering the point that he raised in an intervention just before we broke for lunch.
 To recap briefly, the amendments to which I was speaking concern the powers and abilities of trusts to borrow and how they report such borrowings. Amendments Nos. 18 and 19 are designed to change the basis on which borrowing limits are applied to foundation trusts. Amendment No. 146, which the hon. Gentleman questioned me about, is designed to ensure that foundation trusts that have in recent years been part of major PFI schemes, perhaps to build a new hospital or new wing or to develop a new dimension of their services, are not disadvantaged when the new arrangements are put in place. 
 If current PFI financing is set against a trust's total liabilities when its right to borrow further is assessed, a significant number of our leading hospitals may be unable to take advantage of the extra borrowing rights. The odd situation might arise whereby hospitals with new buildings would be able to borrow no more for extending services, and those without new buildings would not be able to take on the substantial financing that they would need to build them, so there are some contradictions in the provisions. The amendment's purpose is to ensure that if a hospital had just opened a brand new PFI wing that took it over the borrowing limit that I expect to be set out in the prudential code, it would not then automatically be subject to a total moratorium on buying new scanners, for example.

Evan Harris: I do not claim to be an expert on the matter, but is the hon. Gentleman concerned that those hospitals would be treated relatively badly because they would have to finance the pay-off, whereas trusts in a different position would have capital charges to pay back? Is there a way of ensuring that the capital charges in a public scheme are treated in the same way as the costs in a private finance scheme? That might get round the
 problem that simply because something was privately financed, the hospital might not qualify for prudential borrowing if those liabilities were counted.

Chris Grayling: That will depend very much on the trust's level of capitalisation and the final public capital totals that the Government will set for trusts that do not have private sector liabilities. I look forward to hearing the Minister's explanation of how this will be handled. Let me explain my concern. If a brand new hospital has just spent £300 million, it will have to repay that money, but is it the case that, because that total liability is vastly in excess of the prudential borrowing codes level, it will have no further powers to borrow, even for a small specific purpose?

Peter Atkinson: Order. I remind the hon. Gentleman and other members of the Committee that they should address the Chair. I say that not for my benefit, but because Hansard staff have difficulty hearing them if they address the other end of the Committee.

Chris Grayling: I apologise for that, Mr. Atkinson. I hope that I have answered the question asked by the hon. Member for Oxford, West and Abingdon.
 The last amendment in the group has a simple purpose with regard to however liabilities are handled in accounting terms. This is the important distinction between the amendments. We want to understand how PFI will be applied to the prudential code, and to ensure that a hospital with a PFI legacy is not disadvantaged by the code. Whatever the situation and however the finances are accounted, we believe that all liabilities—conventional on-balance-sheet liabilities and what might have been set up as off-balance-sheet liabilities—should none the less be reported back, so that the full, true financial picture of the trust is reflected in the report that it makes to its members and the public as a whole.

Andrew Lansley: In the next group is amendment No. 124, on which I should like to make a few remarks, if I may—[Interruption.] I shall wait for the next group if that is more convenient.

Evan Harris: I risk to speak to amendment No. 161, which is in my name and those of my hon. Friends. I expected to contribute to an ongoing debate on amendments Nos. 263, 264 and, to a certain extent, 265. [Interruption.] I expected to speak about amendments Nos. 263 and 264, but if the hon. Member for Ealing, North (Mr. Pound) is going to make a contribution on those, I shall wait to hear him speak.
 The clause is interesting, because it defines how free, in borrowing terms, foundation trusts will be. We have generally taken the view that, if trusts are to have proper decentralisation and financial freedom, it seems wrong unnecessarily to limit their scope to borrow, because the freedom then becomes a phantom, and the idea of the experiment with providers is to ensure that there is a reasonable approach. 
 We thought that the simplest way and the minimum required would be for the regulator to set as a limit the borrowing that, in his opinion, would not threaten the asset that he considers it necessary to protect, under clause 16. That is a prudential borrowing code. It does not have upper limits or what are, by necessity, artificial limits. It is much clearer, because in the end—[Interruption.] The Minister thinks that it is not clearer. Perhaps because our code is less defined—I accept that—it may not be as clear, but it would certainly provide more latitude. If one is to encourage the use of the freedom to borrow and to identify ways of levering into the health service alternative means of finance as well as of management, the Secretary of State or the Prime Minister, rather than the Chancellor of the Exchequer, should set out the approach to the limits on borrowing. 
 Our amendment offers the logical minimum restriction. It states: 
 ''The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.'' 
That would be for the regulator to decide. That is the sort of requirement that operates in organisations outside the public sector. True voluntary organisations and mutuals have a duty to ensure that they do not put at risk that which is essential to their asset base. I should be interested to hear why the Minister adopted his approach. Even though we have concerns about the Government's model, the imposition of foundation hospital status and some of the issues relating to the winners and the losers, we do not oppose the greater freedom to borrow for this sort of model. We have tried to show that with this probing amendment. 
 We had an interesting interchange with the hon. Member for Epsom and Ewell (Chris Grayling) about the consistency of his amendments and the nature of the probing amendment on private finance, which is a big issue. A number of hospitals are now saddled, some would say blessed, with the need to pay back at much higher rates than could be obtained from public capital the costs of a private finance scheme. Many have insufficient beds to provide the capital that they need. Many hospitals with big PFI projects will be keen to get foundation status. It would be interesting to hear how the Government plan to treat that because it could put a brake on the ability to borrow. It is best if I leave it there.

Stephen Pound: I rise to speak briefly to amendments Nos. 263 and 264. I am almost alone, as I do not have a cohort of supporters behind me. I am trying to define precisely the core role and function of the financial regime that will apply in a foundation hospital. The Committee's blood could be curdled many times over by tales of the financial adventures of some of our formerly state-owned organisations. I do not imply that foundation hospitals will go the way of many bodies that I could list, but it is worth putting down a marker in the form of these amendments.
 The key one is amendment No. 264, which would inserts the word ''direct''. Hon. Members will be aware that subsection (1) reads: 
''for the purposes of or in connection with its functions.'' 
 That is too loose. There is an element of elasticity that slightly worries me. I would be slightly happier were the word ''direct'' used to qualify that. 
Chris Grayling: Can the hon. Gentleman envisage a situation in which to meet a shortage of radiographers a trust might invest in a local college to expand the number of places available to radiographers and ensure an eventual flow of trained people? Would that not constitute an indirect, rather than a direct, investment in its services and therefore be effectively outlawed by his amendment?

Stephen Pound: That is an important point. I would hope that any reasonable human being, even a member of the Conservative party, would recognise the direct link there. I did not want to spell it out, but I am talking about many hospitals, particularly in the south-east of England, that have capitalised on their land bank and the asset value of their property holdings in a way that has quite demonstrably not been directly in connection with their core function of providing clinical services. I hope that that is in the past. I am reassured by some of the comments that the Minister made earlier. Were it a question of nourishing a future crop of radiographers I would see it as a sophisticated, flexible, mature and responsible action rather than anything that can be denigrated by association with asset stripping.

Jim Dowd: I am deeply grateful to my hon. Friend, who was in the Radio Five Live studio when the amendment was being moved, for giving way. Into whose custody would he entrust interpretation of the word ''direct''? Would it be a job for the regulator or, as is more likely in such matters, a job for my learned friends?

Stephen Pound: Whatever else I achieve in my short tenure in the House, let it never be said that I provided succour for my learned friends. They do perfectly well for themselves, and many of them have part-time jobs here. I hope that the word ''direct'' is sufficiently unambiguous that even a cunning counsel would resist the opportunity to reinterpret it. I am talking about something specific, and I shall be happy to hear the Minister's response. I hope that we all agree that the core function of the NHS should be the health of the nation.

John Hutton: I understand where my hon. Friend is coming from on amendments Nos. 263 and 264, but we would end up in the wrong place is we accepted them, because they would clearly prevent NHS foundations trusts from borrowing money to support their income generation schemes. Generally, that would not be a good thing, but it is the only way that I can interpret his reference to the word ''direct''. He clearly wants to confine the opportunity to use investments to the provision of clinical services. As we all know, however, a range of other things done by NHS foundation trusts and NHS trusts form an important part of their overall level of provision and service for patients.
 Dr. Harris: Like what?

John Hutton: What about child care facilities for NHS staff? My hon. Friend the Member for Lewisham, West (Jim Dowd) may be right: the amendment might look like three cherries on a fruit machine for lawyers, and being one myself I am not usually averse to such measures, but on this occasion it would clearly not be right. In other words, the unnecessary introduction of an element of ambiguity into the Bill would be unhelpful, because it would make it much harder for NHS foundation trusts to invest in a range of initiatives and actions that would generally benefit the provision of services that did not fall within any reasonable interpretation of the word ''direct''.

Evan Harris: I asked, ''Like what?'' to provoke the Minister into giving a good example of what he means. Can he give other examples?

John Hutton: There is a long list of examples. The hon. Gentleman needs to acquaint himself with the range of income generation schemes in which NHS foundation trusts take part. Another, which I have seen it at first hand—perhaps the hon. Gentleman and others have seen it—is investing in sheltered housing and key housing support schemes to help to ease recruitment and retention problems.
 One could play with words, arguing that such schemes are related to clinical service and are therefore direct. I would rather not play with words, because it could unfairly and unnecessarily restrict the freedom to borrow and invest. I share the hon. Gentleman's concern, but I believe that he would end up in the wrong place. Such an unwelcome restriction would militate against some of the innovation and enterprise that we would like to be facilitated in the public sector. 
 I have a much greater problem with amendments Nos. 18, 19 and 146. They are designed to give NHS foundation trusts almost absolute freedom to borrow up to 100 per cent. of their total income, with no reference to the regulator, no prudential borrowing code by which to abide and no regard to their ability to service any debt repayments arising in the formulation. That would be daft. It would present an unacceptable risk of financial failure, given the services that NHS foundation trusts provide, particularly the core, protected services. 
 The hon. Member for Epsom and Ewell spoke of his concern about the formulation of the code. From our consultation with the private sector, we know that lenders generally find comfort in the prudential code and do not advocate the course of action that he proposes. He also raised several concerns about PFI. To use the expression of the right hon. Member for North-West Hampshire (Sir George Young), there is an element of groundhog day to this debate, as we have covered the matter before. The hon. Member for Epsom and Ewell has banged on about PFI borrowing counting against the prudential borrowing code, but I made it perfectly clear two weeks ago that that would not happen. There is no question of total PFI 
 borrowing scoring against the foundation trust's prudential borrowing code, and I am happy to repeat that for the third or fourth time. 
 As the hon. Gentleman will know, the structure of the PFI deals means that it is likely that the acute trust will take on contractual liability to make payments for the lifetime of the PFI contract. That will clearly affect its cash flow and, in that sense, its prudential borrowing limit, as it will be determined by reference to its ability to service debt repayments. That is a sensible and prudent way to proceed. It is euphemistically called the prudential borrowing code, but the name is right. Individual borrowing rates will ensure that all external borrowing and other long-term liabilities are kept within prudent and sustainable levels, capital expenditure plans are affordable and management decisions are taken in accordance with professional good practice. Those are all positive reasons to leave the Bill as drafted. 
 Amendment No. 161, which was tabled by the hon. Member for Oxford, West and Abingdon, would allow NHS foundation trusts to borrow without limit provided that protected assets were not put at risk. I do not regard that as a proper safeguard against financial failure. Even without being able to secure borrowing against protected property, an NHS foundation trust could run up unaffordable debt, and that level of risk is simply not acceptable for organisations that provide an essential public service. 
 The hon. Member for Epsom and Ewell spoke to amendment No. 21, which, again, is unnecessary. I do not know how many times I have referred to paragraphs 20 and 21 of schedule 1, but I shall happily do so again. They provide for the independent regulator, with approval from Her Majesty's Treasury, to determine the form of NHS foundation trust accounts. The accounts will contain information that the regulator requires to monitor compliance with the terms of authorisation and statute, including information on borrowing so that the independent regulator can monitor compliance with the prudential borrowing limit. I am sure that the points raised by the hon. Gentleman will be dealt with when it comes to determining the format for NHS foundation accounts; otherwise the regulator's ability to do his job properly would be impeded. 
 This has been an interesting discussion, but for the reasons that I have outlined, I do not think that anything of substance has been raised in the amendments proposed by either my hon. Friend the Member for Birmingham, Hall Green or Opposition Members that would convince me to accept them.

Chris Grayling: I have two points to make on the back of the Minister's comments.
 The first point is that as we progress through the Bill, the Minister says time and again that we need to provide both the freedom to act and a check and balance. If he genuinely believes that foundation hospitals are the right way to generate improved service through local autonomy and control, why will he not give the management of those trusts the same 
 freedoms that other organisations enjoy? The borrowing limits mean that they are constrained not by the case that they can make to potential borrowers or by a demonstration of their ability to pay, but by a code established at the centre. 
 In establishing the financial principles, it would not be unrealistic to give foundation trusts the freedom to borrow within the parameters of an independent judgment of their ability to repay made by financiers in the same way that they assess other organisations every day of the week. We will not agree; I simply wanted to put that point on the record. 
 My second point is that one weakness in accounting in recent years has been that off-balance-sheet debt does not appear in the accounts. If the Minister can give a clear assurance that in setting up the parameters, the regulator will be instructed effectively to enact the direction set out in amendment No. 21, that will be fine. However, many corporate failures have taken place simply because ingenious management, constrained by what it can do through conventional channels, has sought alternative ways of working. 
 Given the likely constraints on borrowing as a result of the establishment of the prudential code, some management teams will consider other ways of financing the things that they want to do. Given that liability is not easily established, as we know, it is not unreasonable for the members of a trust and the public looking at the accounts to expect a simple statement of the trust's total off and on-balance-sheet liabilities. It is simply prudent to ensure that a trust provides such a statement. I hope that the Minister will ensure that that is part of the guidance from the regulator. I am happy to accept his word that that is the case, but I stress to him the importance of that point. That said, I shall not press the amendments to a vote.

Stephen McCabe: The Minister has got us on this one. Astonishing though it is, my hon. Friend the Member for Ealing, North would like me to withdraw the amendment. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Chris Grayling: I beg to move amendment No. 20, in
clause 17, page 8, line 3, at end insert—
 '(5A) A trust may use the assets acquired as a result of an investment in a body corporate as security to secure funding to make further such investments.'.

Peter Atkinson: With this it will be convenient to discuss the following amendments: No. 124, in
clause 17, page 8, line 6, at end add— 
 '(7) An NHS foundation trust shall have the power to direct surpluses generated from any of its activities towards the provision of goods and services under the NHS, but it will not have the power to distribute surpluses generated from the provision of NHS goods and services towards any other activities or by way of a distribution to its members.'. 
No. 265, in 
clause 17, page 8, line 6, at end add— 
 '(7) Each NHS foundation trust must publish annually a complete list of every company and body in which investments are held. 
 (8) No employee or director of an NHS foundation trust shall obtain any direct or indirect personal pecuniary advantage from any investment by the trust concerned.'. 
Chris Grayling: The purpose of amendment No. 20 is to strengthen the ability of the foundation trust management to expand and develop its services. Subsection (5) says that trusts have the power to invest in 
 ''forming, or participating in forming, bodies corporate'' 
 ''otherwise acquiring membership of bodies corporate.'' 
In the past two or three months the Government have, with the astute purchase of an American company, Life Resources Inc., given us a snapshot of how that might happen. A deal was struck shortly before last Christmas that was designed to secure the long-term supplies of non-UK blood plasma for NHS patients. There was a problem with supply, and the NHS decided to step in and buy the company to guarantee the supply of its products to the NHS. 
 That was a sound decision, and it was generally welcomed at the time. It highlights the steps that an NHS organisation might want to take to secure access to a particular service or product. It is perfectly conceivable—indeed, it is my belief, but the Minister will correct me if I am wrong—that subsection (5) is designed to offer foundation trusts the ability to take similar steps when they want to secure access to a particular product or service, or to expand their horizons to strengthen the range of products and services that they can offer people. 
 It seems logical that if foundation trusts are to follow that path, we should give them the right to use the assets acquired as a result of investment in a body corporate as secure funding to make further such investments subject to the prudent approach that lenders would always take in such situations. It is common practice in the commercial world when buying a couple of businesses to reduce one's finance costs or to secure additional finance by securing the assets of one part of the acquisition against another. There are all sorts of bits of financial engineering that enable companies to take on additional capacity, to make acquisitions and to do what subsection (5) describes to acquire membership of a body corporate. 
 The amendment is designed simply to give NHS management greater freedom to do that. Although we may not want them to use their core assets as security for acquisitions, we should accept that if they are investing in a body corporate there is no possible reason why they should not be able subsequently to use the asset value of that investment, especially if it proves to be successful and generates additional wealth for the hospital. Why on earth should we not allow them to secure additional funding for a further investment on the back of the gains and assets base within the acquisition that they have already made? 
 I hope that the amendment is not controversial. It is certainly not designed to create endless liabilities on behalf of trusts; it is intended to give management greater flexibility in developing and enhancing the 
 services that the trust can offer. I hope that the Government can accept the proposal in this or a similar form.

Stephen Pound: I speak to amendment No. 265 in my name. The amendment stands as a monument to honesty, transparency and best practice, and it is not intended to be probing or wrecking. [Interruption.] Am I at the right page? I beg your pardon, Mr. Atkinson. It is just that a look of pain crossed the face of the hon. Member for the hon. Member for West Chelmsford (Mr. Burns).

Peter Atkinson: Order. I thought that the hon. Gentleman was speaking in support of amendment No. 265.

Stephen Pound: I was. I am far too solicitous of the young puppies on the Opposition Benches. As I said, I hope that this is an uncontroversial amendment. It is not supposed to be a wrecking or probing amendment; it is more of a pecking amendment. It is trying to penetrate the carapace of actuarial obfuscation that occasionally occurs in large corporations and possibly in foundation hospitals. It would simply require that the foundation trust annually publish a complete list of all the organisations, bodies and companies in which investments were held. I am making it a basic requirement that no one gains any pecuniary advantage from investing in those trusts or companies.
 I am not implying that there are people motivated by avarice working in the national health service. I worked in it for many years and can vouch for the honesty and probity of all those who still do so. However, it would be helpful for us to put down a marker to say that we would not encourage the practice of not publishing investments or even of individuals in the foundation trust having advantages from specific investments, for the obvious reason of conflict of interest. I move the amendment in the interest of avoidance of that end and in the interests of transparency and honesty.

Andrew Lansley: I was so excited about addressing amendment No. 124 that I jumped the gun slightly. Now that we have reached it I shall attempt to excite the Committee about it. It serves two purposes. I confess that the Government might not want to adopt it, because it is designed to elicit an understanding on my part of how the Government intend to achieve two purposes. I looked for them and anticipated that they would be there, but they were not.
 The first purpose is the maintenance of effective competition in the independent sector. The Minister will acknowledge that there are places where there will be competition, and that in the independent sector there should be competition where the NHS is not engaging in subsidised competition. There should be an accounting separation between the publicly subsidised activity of NHS foundation trusts and other activities of a commercial nature that are not directed towards the provision of services to NHS patients. 
 Linked to that purpose is ensuring that surpluses generated from NHS activities—through taxpayer resources—are retained and directed towards the provision of additional capacity and additional service to NHS patients. In previous debates we have learned that surpluses can be generated from such activity. That may be a basis on which new capacity is offered in many trusts. I do not doubt that it is the intention of NHS foundation trusts to use surpluses generated from their NHS activity for NHS purposes, but, given that we expect that to be the case not only for the generality of trusts but for all trusts in all circumstances, why is there no provision to add that safeguard? 
 I deal now with the second purpose. The Minister has been reminding us of the necessity of certain safeguards and this seems a logical one. I have linked it, in amendment No. 124, to another safeguard. When we were discussing public benefit corporations—which NHS foundation trusts will be—it was implicit in the discussion that they are like companies limited by guarantee in that they are not profit distributing. It may be implicit, but I cannot find it stated explicitly. I cannot see the place in schedule 1, for example, that makes it clear that NHS foundation trusts or public benefit corporations under schedule 1 will not be able to make a distribution to their members. The Minister may tell me I have missed it, but as far as I can see I have not. However, as we are working on that assumption, it should be expressed in the Bill. As it is not, amendment No. 124 provides a fair basis for expressing it.

John Hutton: Amendment No. 20, tabled by the hon. Member for Epsom and Ewell, would mean that NHS foundation trusts could use any assets acquired through investments as security to make a further investment. If the hon. Gentleman's intention is to allow money to be so reinvested, I can tell him that the Bill already allows that to happen. Therefore, the amendment is unnecessary, provided, of course, that such borrowing is within the prudential borrowing limit.
 However, if the hon. Gentleman's intention is to allow fiscal assets to be used as security for borrowing, it would be acceptable under the Bill as drafted—it is clearly within the terms of the Bill—provided that those assets were not classified as protected under clause 16. I shall not rehearse the argument about the need to protect assets under that clause as we have been over that territory extensively and I have expressed my views on the matter. It is important that NHS foundation trusts are not able to dispose of, or use as security for borrowing, assets that are required for the provision of essential NHS services, as it would jeopardise the continuity of the provision of such services. 
 Amendment No. 124, tabled by the hon. Member for South Cambridgeshire (Mr. Lansley), is interesting. It has two elements: the first would prevent NHS foundation trusts from using surpluses gained from the provision of NHS services in any other 
 activities, apart from NHS activities. In view of everything that the hon. Gentleman said, I would be surprised if that were his intention, given that the amendments are largely designed to free NHS foundation trusts. The amendment would have the opposite effect. As there was with the amendment tabled by my hon. Friend the Member for Ealing, there is also a problem about how this amendment would affect the wider income-generation opportunities available to the trust, for example. I imagine that it was therefore a probing amendment, as it would restrict the opportunities for the foundation trust to invest assets more widely in support of its activities. 
 The second element of amendment No. 124 is more substantive: it is about distributing surpluses to members. I can reassure the hon. Gentleman that he is right; there is no express provision to that effect in the Bill, but that is because it is not needed. The financial regime already prevents NHS foundation trusts from distributing surpluses to members. As statutory corporations, NHS foundation trusts have only the powers granted to them by statute. Clause 17 does not give them the power to distribute or invest money other than in connection with its statutory functions. The hon. Gentleman has made a good fist of it but in legal terms his amendment is not needed. 
 Amendment No. 265, tabled by my hon. Friend the Member for Ealing, North, would require every foundation trust to publish annually a list of all the companies and bodies in which it holds investments. In addition, it would prevent any employee or director of an NHS foundation trust from gaining any personal advantage from any investment made by that trust. For example, NHS foundation trust employees could not hold any stock or be employed in a company in which an NHS foundation trust had invested. 
 It is important that foundation trusts should be accountable for their investment policies and there is no doubt that the regulator will need that information in order to perform his functions, especially those under clauses 15(2) and 14(2). The trusty support mechanism in schedule 1(20) and clause 10(2) already means that NHS foundation trust accounts will be in a form prescribed by the regulator and open to public scrutiny, as they should be. Thus the first part of the amendment is unnecessary. 
 I have a more fundamental anxiety about the second part of the amendment. It is right that the policy for NHS foundation trusts should not become a vehicle for people on the governing boards, directors or employees, to derive significant pecuniary advantage. I agree absolutely with the hon. Gentleman on that point. However, it would not be in line with our aims of encouraging enterprise and innovation to require NHS foundation trusts to impose a total ban on the involvement of employees or directors in the ventures that such a trust may properly set up or invest in in pursuit of its functions. Imposing a ban would cut directly across our line and practice in other not-for-profit organisations such as charities and higher education institutions. It is seen as perfectly proper that academic staff in universities should have an interest in promoting research that has financial 
 benefits for the individual, and for the university as the investor. That is an obvious parallel, given the educational and research activity that occurs in many NHS trusts, and in those that want to become NHS foundation trusts. 
 I agree with the hon. Gentleman insofar as we are talking about transparency and openness. The regulator will certainly want to address those in his guidance to NHS foundation trusts on governance and corporate probity. I am sure that he will want also to draw on existing material published by bodies such as the Higher Education Funding Council and the charity commissioners. Again, I have a pleasant sense of deja vu about the amendments, but for the reasons that I have outlined, I would urge the Committee not to accept them.

Chris Grayling: I seek one point of clarification. If a trust generates surpluses and reinvests them in the acquisition of a body corporate, and in doing so further increases its revenues, will it be able to secure from the regulator a change to the code against which it is allowed to borrow; and will that change be something that can happen at any stage, or can it happen only once in every one, two or three years?

John Hutton: Clause 17(3) includes a provision for an annual review of the prudential borrowing limit, but if the revenue available to the NHS foundation trust were to increase as a result of a successful investment or income-generation scheme, it would affect its overall borrowing limit because the resources available to service debts would have increased. It would clearly have an impact—I think that I am right in saying that, but I shall get confirmation later.
 The borrowing limit is set out in the authorisation for the NHS foundation trust. Under clause 9, it is possible for that to be varied on an application by the NHS foundation trust. It would be possible to review the prudential borrowing limit ahead of the annual review provided for in clause 17, if the NHS foundation trust felt it necessary to do so.

Chris Grayling: I am grateful for that clarification. I am happy to withdraw the amendment.

Andrew Lansley: I accept what the Minister had to say; I understand that, as there is no power to distribute to members, there is no need for a prohibition. I understand also the need for NHS foundation trusts to use resources generated from NHS activities to provide what might be regarded as services ancillary to its NHS activities, and that child care facilities may be a good example. However, it is important to recognise one of the long-term protections that will be needed: NHS foundation trusts should not become vehicles through which surpluses generated by publicly funded activities inside the NHS can be directed towards commercial activities outside the NHS on terms that are anti-competitive in relation to commercial providers.
 As far as I am aware, we can probably be reasonably comfortable about that, because if NHS foundation trusts were to engage in that sort of behaviour, competition legislation would bite upon it. Such 
 behaviour would be protected only insofar as the NHS foundation trusts were undertaking their public duties, which is the provision of goods and services for the health service under the NHS; otherwise they would expose themselves to anti-competitive legislation under the competition rules.

John Hutton: I am grateful to the hon. Gentleman for allowing me to give the clarification and confidence that he seeks. He should remember that clauses 6, 14 and 15 already provide for the terms of authorisation to restrict activities that fall outside the NHS foundation trust's primary purpose. Under clause 14, it is the provision of NHS services that is the principal purpose that the foundation trust has been set up to secure.

Andrew Lansley: I am suggesting that an additional protection may be needed if an NHS foundation trust is engaged in its primary purpose but has a small adjunctive service. For instance, it might provide a local engineering service, perhaps for medical equipment, and begin to commercialise it. If that were subsidised out of NHS activity, it would expose itself to scrutiny by the competition authorities for doing so on an anti-competitive basis. I think that we are protected on that and so I will not pursue the matter any further. If I am mistaken, I am sure that the Minister will write to us.

Stephen Pound: My right hon. Friend the Minister has spoken with great skill about my amendment No. 265. He has answered my concerns about subsection (7) completely. I still have problems with the Government's reluctance to accept subsection (8) as set out in the second part of the amendment. I cannot understand how we can countenance a situation in which a foundation trust can invest money in a company and an employee of that trust can gain pecuniary advantage. We are told that were the amendment accepted it would create an unfortunate precedent for other national bodies, but that is an argument for cleaning them up rather than amending this. I am normally the most biddable of people. My right hon. Friend usually needs little effort to convince me but I have grave doubts about this.

John Hutton: I am sorry that I have not persuaded my hon. Friend on this occasion.

Stephen Pound: I have not finished yet.

John Hutton: We are not giving to NHS foundation trusts or their employees any financial advantage that is not currently exercisable by employees of NHS trusts. These freedoms are already available—rightly so—to encourage innovation and public sector enterprise. It would be a sad day if we lost them.

Stephen Pound: My response would be that I hope we are starting down a different road. NHS foundation trusts are a different beast from those we have known before. We should use this opportunity to breed a better beast. The fact that it exists at present is not a persuasive argument. However, I recognise that it
 would probably be inappropriate for me to seek to divide the Committee on this occasion as several hon. Members want the matter to be discussed in another place and in the Chamber.
 Amendment, by leave, withdrawn. 
 Clause 17 ordered to stand part of the Bill.

Clause 18 - General powers

Chris Grayling: I beg to move amendment No. 474, in
clause 18, page 8, line 8, leave out
'which appears to it to be'
and insert 'that is'.
 This amendment need not take up more than a couple of minutes of the Committee's time. It seeks to avoid offering opportunities to the Minister's past profession and his former colleagues. The phrase 
''which appears to it to be'' 
seems extremely woolly for a piece of legislation that should be tightly and carefully worded. We cannot see why ''anything'' needs to be subject to interpretation; surely the phrase ''that is'' is an acceptable alternative. It is a minor improvement that we hope the Government can accept.

John Hutton: The hon. Gentleman said that the drafting was woolly and unacceptable. I can reassure him that it is taken from legislation that his party introduced.

Simon Burns: That does not mean it is good.

John Hutton: Indeed, but it has certainly stood the test of time. Paragraph 16 of schedule 2 to the National Health Service and Community Care Act 1990 states:
''an NHS trust shall have power to do anything which appears to it to be necessary or expedient for the purpose of or in connection with the discharge of its functions''. 
It has not had any undesirable or outlandish consequences, and I have no reason to assume that it will on this occasion. 
 There is one other problem with the amendment. Clearly, someone must decide what is necessary or desirable for the purposes of a foundation trust discharging its functions. Generally, it is better for that to be the responsibility of the organisation's management and governors rather than, as the amendment would require, another body. In this case, that would be the independent regulator. The amendment could be interpreted as requiring every exercise of an NHS foundation trust's function to be subject to individual approval by the independent regulator. That would be ridiculous.

Chris Grayling: I am not sure whether I agree with the Minister's interpretation, but I am grateful for his clarification of the reason for the wording. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Chris Grayling: I beg to move amendment No. 16, in
clause 18, page 8, line 9, at end insert—
 '(1A) An NHS foundation trust shall have the power to pay remuneration and allowances to any person without reference to future national agreements on pay negotiated by the NHS.'.
 We now go back to a significant point of principle and difference between the Conservatives and the Government. The amendment is designed to provide a foundation trust with the freedom to set its own pay rates. The Minister will undoubtedly talk about the freedom available in ''Agenda for Change'', but I dispute that and challenge the need for any straitjacket to be placed on NHS foundation trust managers who seek to take decisions aimed at enhancing and strengthening patient care. 
 It is extremely difficult for NHS trusts, particularly in the south of England where housing and other living costs are disproportionately high in comparison with other parts of the country, to secure the staff they need, whether ward nurses, surgical doctors, utility staff or laboratory technicians. There is a huge difference between the financial position of a young nurse on a salary of £18,000 to £20,000 a year in Surrey and that nurse's equivalent in Durham, Scotland, Wales or other parts of the country. The average house price in those areas means that a young couple—a teacher and nurse, for example—who are married or living together can easily afford to pool their salaries to buy a small starter home in the early stages of their career. That is simply not possible in other parts of the country, including my constituency, and too many of our public sector professionals are faced with the task of trying to get subsidised public sector housing. 
 As the Minister and all Members who represent constituencies in the south of England will know, there is no easy solution. However, trusts in areas of the country with either general or individual staffing issues—the inability to fill one post or the desire to recruit someone with specific expertise, for example—should be able to deploy their financial resources in a way that enables them to secure the skills they need to run their hospital and deliver the treatment their patients expect. 
 That is the purpose of amendment No. 16. It puts down a clear marker to say that if we are going to have foundation hospitals that are truly free and able to take decisions in the interests of their patients and the communities that they represent, they should not be straitjacketed by national pay agreements that do not reflect the realities of the local labour markets. 
 The Government are clearly wising up to that fact, and they should take credit for doing so. I do not think that they have gone far enough, but during the Budget debate the Chancellor of the Exchequer referred to the problem and talked about the need to create regional conditions in pay. He spoke about establishing regional retail prices indices to enable the public sector in particular to take more informed decisions about the pay and labour market realities in individual areas. 
 In response to a question from my hon. Friend the Member for Woodspring (Dr. Fox), the Secretary of State for Health said: 
 ''It is right, as my right hon. Friend the Chancellor of the Exchequer said, that we need to recognise that there are different labour market conditions in different parts of the country.''—[Official Report, 29 April 2003; Vol. 404, c. 142-43.] 
 To that extent, there is common ground between the Government and us. The difference is in how we would address those problems. The steps that the Government have taken to deal with the situation, predominantly through ''Agenda for Change'' and by saying that there should be a 30 per cent. flexibility ceiling for local employers, are welcome as far as they go, but they do not go far enough. An artificial ceiling is being created that does not need to be there. The figure of 30 per cent. sounds huge, but it is not when one thinks of the salary level of, for example, a junior lab technician in the national health service. Thirty per cent. may be £4,000 a year. 
 Furthermore, in parts of the country, one can hire a lab technician on a relatively low wage, and in other parts one cannot. In one part of the country, employers may be able to get the people they need for £15,000 or £20,000 a year, but in another part of the country they may need to pay them £20,000, £25,000 or £30,000. That decision can and should be taken locally by managers considering the budgets available to them and saying, ''Look, we have a critical hole in our staffing. This laboratory lacks a key person. If we cannot fill the post, we cannot provide a service, so we need to go that bit further to fill the gap.'' 
 I experienced that directly in my constituency recently. This is a very good example. A lady who was on a waiting list for a bone scan at St. George's hospital in south London had been waiting 11 months for her treatment. Her appointment date was after 12 months. About three weeks before she was due to go in for her treatment, she received a letter from the hospital, saying that owing to chaos in the department over the past few months, the hospital was unable to provide her with the treatment at that time, and offering a new appointment date 12 months further on. That lady will therefore have a two-year wait for that bone scan. The reason is that the hospital lacks key people in the department but, under current NHS pay structures, has no ability to say, ''This is an unacceptable situation. We have to deal with the problem. Let us pay someone more to come in and do the job.'' 
 The Minister knows that any number of skilled professional medical practitioners have chosen to leave the NHS to go into commercial industry or entirely into the private sector, yet we are not giving our trusts the ability to say, ''We need that person back. We will go and get them.'' Currently, national pay and conditions structures preclude that from happening. I accept that the Minister is building in some flexibility through ''Agenda for Change'', although as my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) said in Health questions earlier, the first vote on ''Agenda for Change'', involving radiographers, has gone against 
 the package, and it is far from clear that the Government will be able to implement that new contract structure. 
 In reality, we do not need, and we should not need, to place these constraints on our health service managers. There are huge issues at individual locations, where individual posts need to be filled urgently and where patients will suffer quite badly even if only one post goes unfilled. That is why we must give hospitals the freedom and flexibility to say, ''This is important. This is the right use of our resource. We will go out and get that person.'' 
 That is the purpose of the amendment. We want hospital managers to have those powers. An artificial 30 per cent. ceiling is not needed. With regard to the principle of foundation hospitals and managers having freedoms, we have heard how their freedoms to borrow are curtailed and we are now hearing how their freedom to employ staff on their own terms is curtailed. The only freedoms that they really have are to decide who can vote for the foundation hospital boards. We strongly believe that if foundation hospitals are to achieve what they should achieve, this is one of the fundamental freedoms that their management teams must have. We urge the Government even now to think again and give them that freedom.

Evan Harris: This is an interesting debate and one that we have not had properly so far, certainly on the Floor of the House, because the Government's position seems to change regularly. However, there is no doubt that this is a difficult area, because a balance has to be struck between the wish to provide independence for this significant part of the trust's turnover and the need to ensure that there is not what the Government sometimes describe or used to describe as poaching, but now describe as a return to competition instead of collaboration. It is a difficult position. The Liberal Democrats are not opposed on principle to local pay, locally responsive pay and, for what it is worth, the resultant pay inflation that will allow the public sector to compete with the private sector in areas where it needs to.
 There is not ideological opposition to local pay as there used to be—in the Labour party as well. To an extent we already have local pay in two ways: first, we have cost of living allowances that differ greatly from one area of the country to another. They are not sensitive enough; they are not adequate, but they are different, which means that take-home pay is different, although it is supposed to monitor living costs. Secondly, in the appointment, recruitment and pay of agency staff there is an unregulated local pay situation where nurses often leave the NHS to get a better deal from trust money through an agency.

Chris Grayling: Does the hon. Gentleman agree that one of the problems with local allowance structures being set within national pay frameworks is that they can create major distortions within the locality that local management is unable to address? On one side of the London boundary compared with the other, staff
 can be paid up to £6,000 a year more in different public services. Local managers do not have the ability to break out of those structures and to remove the distortions that that creates in the local labour market.

Evan Harris: Clearly, if one were to have a system of local pay, in the ideal world it would be locally responsive for people who can respond to the local labour market conditions and do not have to accept an allowed regional imposition of pay flexibilities or cost of living allowances. In those areas I have some sympathy with the hon. Gentleman. But he did not mention the poaching of staff—although I am sure he recognises the issue—regardless of there being some trusts that can borrow more or keep more of a return from selling assets and other things.
 Even within the same sort of provider model some trusts are blessed in inheriting a capacity that means that they do not have to spend over the odds buying in extra capacity through agency nurses or expensive contracts with the private sector. Such trusts will be in a better position and will be able to attract staff effectively because there is not an excess of staff at the moment and it will be some years before there is. They will attract their staff from other NHS hospitals that do not have either the flexibility on resources because the foundation trust has a different provider model, or which, even within the same model, are afflicted with historical capacity problems, whether they be in the acute sector as I have just described or in the social care sector. 
 If in one area there are not enough nursing homes and much of the capacity is taken up with delayed discharges, the trust will be spending greater resources to open up new beds to replace those that are blocked. That is not really a sign of bad management on its part, yet it will effectively be punished. So we need to find a way out of that dilemma. Its impact will be that struggling trusts will struggle even more because the only way they will be able to compete is to pay inflation that they cannot manage. Those that are already doing well will do better. 
 I hope that the hon. Member for Epsom and Ewell will recognise that as a threat, risk and problem and will address what he would do to deal with it.

Gary Streeter: I agree that this is an important discussion, to which I hope to contribute in a moment. Does the hon. Gentleman recall that the Minister sought to reassure us the other day that clause 27, entitled ''Co-operation between NHS bodies'', was the primary safeguard to prevent hospitals from bidding against each other and poaching? Is he reassured by that safeguard?

Evan Harris: No, and I was coming to the Government's position. However, I thought that it would be wise to set out the problem and then to say briefly how we would tackle it. Identifying the problem is not just a matter of saying to the Government, ''Yah boo, your approach is not correct.'' There may be a different way and it may not surprise the Government that our model of local pay involves the ability of local
 health service commissioners, who ultimately pay the bill, to be able to raise money through tax-varying powers locally. The hon. Member for West Chelmsford (Mr. Burns) is always surprised and shocked to hear a good idea, but he has heard this one before. [Interruption.] Well, what I would call a good idea and what he thinks and hopes would be a bad idea.

Simon Burns: I am still waiting for the policy paper that the hon. Gentleman promised me.

Evan Harris: I am guilty of assuming that the hon. Gentleman is able to go to a website.

Simon Burns: The hon. Gentleman promised me that he would personally make a policy paper available to me before the recess.

Evan Harris: I said only if the hon. Gentleman was sufficiently abrasive and nasty and he has been too pleasant. If he carries on, I will give him a paper but he ought to pay as he has huge amounts of outside funding that we do not have. [Hon. Members: ''Withdraw.''] I will not follow that line. I am not withdrawing anything.
 The key issue, if there is to be local pay, is that those who pay the bills locally must have the ability to respond to labour market pressures and a competitive environment. There is no denying that if there is flexibility in pay for NHS staff there will be competition in the labour market, especially when staff are in short supply. Local people must have the ability to say, ''We think that it is worth ensuring that we can compete in this area and pay what is necessary to have well-trained, well-motivated NHS staff, based locally, not indirectly employed through agencies, and we need to introduce that system. If we do not, those without resources will get poorer as they will be unable to compete in a more flexible labour market.'' 
 The Conservative party needs to address that fundamental problem. It is not a fanciful suggestion; such things are already happening and we have not heard the Conservatives' proposal to tackle the matter. [Interruption.] The hon. Member for Chesham and Amersham (Mrs. Gillan) says that it is the Government's problem to sort out these matters. It is the Government's problem, but one has to come up with an alternative. 
 In the interim, we propose having realistic living cost allowances, which many parts of the country do not have at present. That is why many no-star trusts are made scapegoats. They perform badly because they have no capacity. They have the greatest difficulty in recruiting all hospital staff, especially nurses, and staff for the care home sector. The data is clear; the shortage of care workers is greatest in the south-east, in the social care sector and in the NHS. Until the trusts that are struggling have the ability, through the commissioners and their contracts, to increase resources locally, introducing the proposed flexibility will make matters worse. 
 I now come to the point made by the hon. Member for South-West Devon (Mr. Streeter). The Government say that there will be no poaching and 
 also that foundation trusts will have the ability to offer more than a neighbouring trust. I have never been able to understand their position on that. I make a genuine plea to the Minister to explain how the proposed flexibility can be used in the present tight labour market—that is a generous way of putting it—without it involving poaching and therefore a breach of the duty not to impact badly on other trusts. 
 The hon. Gentleman was right to draw attention to clause 27, amending the Health Act 1999, which states that there is a duty of co-operation between NHS trusts and NHS foundation trusts. There is a fundamental inconsistency between Ministers talking in the current pay climate and labour market climate about increased flexibilities to pay more and about a duty of co-operation. I know that the Minister is keen to address those key issues, but I am not sure that he always has the time to get round to doing so. I hope, however, that he will address the issue of how those two statements might match. That is a challenge for all parties, and the Conservative party needs to explain what it would do about non-foundation trusts or about NHS trusts that are simply unable to compete because they do not have the resource base to do so.

Chris Grayling: Has the hon. Gentleman considered the fact that the labour market is not so flexible that people simply up sticks and move around ad nauseam? One does not move from one part of the country to another at the drop of a hat. If all NHS trusts were to become foundation trusts, which is what we would choose, surely he would accept that those trusts would be able to provide an attractive framework for all employees and would be more strongly and clearly placed to attract people into the health service, which is the real problem. Does he accept that we are not attracting back from the private sector people who gave up the health service, and we need to make it attractive for them so that they will come back?

Evan Harris: I do not believe that the private sector will lose all its staff to foundation trusts, especially in the current climate. I have examined this carefully and have found that, generally speaking, if an employer advertises for nurses at a higher rate than the local NHS rate, it will be nurses working in other trusts who are looking to move on who respond. Some people working in these professions are reasonably young. They are mobile and will move for better pay, or better conditions—pay is not the only thing that is important, as has been pointed out several times.
 It is not enough for the Conservative spokesman to say that everyone will be on a level playing field if all NHS trusts are foundation trusts, because some NHS foundation trusts would still spend much more than others when buying extra capacity because of capacity constraints outside their control, such as delayed discharges consequent on an inadequate supply of social care settings and domiciliary or residential care at the social services level. In those circumstances, the issue is not about foundation trusts versus non-foundation trusts, although that is relevant to the Bill, but about those people who are in a losing position having no option for raising extra revenue. The policy 
 that I propose is attractive because it allows commissioners to recognise the problem and to tell the electorate, ''We need the resources if we are to compete and have a well staffed, well motivated and well trained work force, and if you, the local consumers of the service, want such a work force, it must be paid for.''

Chris Grayling: We have had extensive debates during the Committee's deliberations about the role that tertiary centres would play and about the difficulty in defining their constituencies. Where a tertiary centre had sought to take the steps that he described, will the hon. Gentleman explain how it would go about raising taxation?

Evan Harris: That is a fair question, which the Liberal Democrats have also addressed. We propose the earmarking of national insurance contributions, so there would be regional variations in our national health contribution. We would place strategic health authorities in a democratically elected regional tier with accountable health policies. It is tertiary centres that are planned with strategic health authorities.
 I respond to the hon. Gentleman's point because it is important that policy recognises that the tertiary centres—the specialist centres—must also be looked after. He may not agree with the solution, but I hope that he will recognise that we have at least considered the problem. 
 The Opposition cannot support the amendment without a solution to the problems that I have mentioned. The Government's policy is a mess because it is neither one thing nor the other. With regard to clause 27 and those flexibilities, the Government are trying to have it both ways. When they are criticised by their Back Benchers for ''two tierism'', they point to the duty of co-operation, but when they are confronted by the Conservative party calling for more pay flexibility, they talk up the ''Agenda for Change'' and the 30 per cent. flexibilities as part of their proposal. They say different things to different groups of people, because they are in an impossible situation—[Interruption.] I have been consistent about this. The Minister does do that. It may be said that everyone does it, but with regard to this measure, the Government must outline a consistent approach to solving the problem.

Gary Streeter: I hope to be brief in supporting the amendment, although the debate is an important one. The provision is a litmus test of the true measure of freedoms being granted to foundation hospitals. I can see no reason why a foundation hospital, having set up the safeguards required by the Bill, and having given ownership to local people, set up the board of governors and appointed the non-executive directors, cannot decide the pay levels necessary to recruit and retain staff, to make the organisation effective and excellent in the locality.
 My primary motivation in speaking in support of the amendment is the knowledge that I have gleaned from tackling problems on a weekly basis in my constituency. The south-west has very low wage levels, 
 but very high house prices, and that precludes many people, especially young professionals, from buying their own houses, and means that many organisations in the west country struggle to recruit and retain sufficiently high quality people. If hospitals in the west country are to flourish and attract the right sort of skilled, medical clinicians, we must set those hospitals free to pay what is necessary in that locality to attract that quality of staff. 
 I appreciate that those issues may not be easily understood by all members of the Committee, and that there are parts of the country where, for example, house prices are still relatively low. I recently went to Manchester, and was stunned that there were streets of houses in central Manchester that were boarded up—they could not be given away. [Interruption.] It is absolutely true. It was in the centre of Manchester six months ago. I was taken around streets—I cannot remember the street names—where at least a third of the houses were unoccupied. People had handed the keys back to the building societies because those houses could not be sold—there were insufficient buyers.

Andy Burnham: Will the hon. Gentleman give way?

Gary Streeter: I will give way to the hon. Gentleman, as he has more local knowledge, but I can confirm that that is what I saw.

Andy Burnham: I should be grateful if the hon. Gentleman could tell us where in central Manchester that was. If he has been to Manchester recently, he will find that there has been more regeneration and investment, and that it is probably one of the most desirable places to live in the country.

Gary Streeter: I am grateful for the hon. Gentleman's intervention, but I said that I could not remember the names of the streets. I will consult my diary and get back to the hon. Gentleman if he is particularly interested. It was but six months ago, so perhaps he needs to spend a little more time in his own constituency, to find out what is going on there. My point, however, is—[Interruption.]

Peter Atkinson: Order. The Committee is getting rather excited and noisy.

Gary Streeter: In South Hams, where the average salary is £14,000, the average house price is £140,000. Clearly, those sums do not add up for young people seeking to get on to the housing ladder.
 What prevents the Government from giving the foundation trusts the freedom to decide what salary levels to set? I know that there is a legitimate concern about poaching. We do not want a health service in which people are perpetually moving from one hospital to another, simply for an extra £500 a year. However, there is a solution other than clause 27, which I was not convinced was a complete safeguard 
when I first heard of it. However, perhaps the Minister will persuade me in his response, as I know that he is listening carefully to every word that I say.
 It is possible to determine whether salary levels set by a foundation trust are designed to poach staff from competing hospitals in that region or are fixed at the level necessary to recruit the right quality of staff. A trust could produce evidence to show that it cannot attract the right staff at level X, but can at level Y, to justify the salary settings. If foundation hospital trusts can meet that test and prove that they are setting the levels necessary to attract, recruit and retain those skilled workers, they should have the freedom to set salary levels. 
 It is no good to say that that will give us regional variations. I sit on the Select Committee on Housing, Planning, Local Government and the Regions, and there has been talk about regional variations, but there are variations within regions, too. Decisions on salary levels should be for local directors of the foundation trusts, and I see no reason why that cannot be the case. A lot of money is currently wasted in the health service by paying for agency nurses and stripping developing countries of some of their high quality nurses to bring them over here for high salaries. It would be far better, and much more moral, to allow each hospital trust to pay what it takes in its locality to attract and retain the right level of staff. 
 I do not see why the Government will not accept the amendment. I will listen carefully to the Minister's response, but I suspect that they will reject it simply because they do not want to devolve too much real power to the hospital trusts. They already have sufficient safeguards, and this is one point on which they should budge: let the hospitals decide how much to pay their staff.

Simon Burns: I rise in support of the amendments. I represent a constituency 35 miles north-east of Westminster, and we as a community are just too far away from London to benefit from the London weighting allowance, although other parts of Essex to the south do benefit. My local hospitals of Broomfield and St. John's, in the Mid-Essex Hospital Services NHS trust area, have some extremely dedicated and first-rate staff, not simply consultants and doctors, but nurses and ancillary staff who, although all-too-often forgotten, ensure the smooth and effective day-to-day running of the hospital for the clinical and nursing staff. There are also professional staff, such as the pathology workers.
 One accepts that working in the health service is a vocation, but it is not exclusively a vocation and the levels of pay are far too low considering what has happened during the past eight years, particularly in the past four years, to house prices in the area. As my hon. Friend the Member for South-West Devon said, salary levels are so low compared with the average house prices that there is no possibility of a single person—a nurse, for example—being able to afford to buy their own home on a mortgage, however modest that home might be. Looking through the 
 advertisements for houses in the Chelmsford area, whether they are for a modest house or a flat, it is difficult to find anything under £100,000. 
 That is why it is important to introduce a power, as the amendment would, to allow foundation trusts to have some flexibility in deciding remuneration to take into account local circumstances. As the Minister has said, the Government's intention is that in the next four to five years all hospitals will be able to secure foundation trust status. We would have liked the policy to have been unveiled with one step, rather than several steps, to achieve that aim, but we welcome the fact that since announcing their original intentions, the Government have backtracked and agreed that all hospitals can seek foundation status within a relatively short time. 
 The Minister may say, with some justification, as my hon. Friend the Member for Epsom and Ewell said, that there is already flexibility in the system, but it is not flexible enough for some parts of the country where there has been an inexorable increase in house prices. Two years ago, the Government introduced the cost of living supplement for nurses. It was particularly perplexing to my constituents in Chelmsford that although the county of Essex borders London, Hertfordshire and Cambridgeshire, it was not among those that received the cost of living supplement for nursing staff in the first year, although, if I remember correctly, Dorset, Wiltshire and Bristol were included. The Government took the extraordinary decision to exclude a county close to London, where there had been large increases in house prices and relatively modest levels of remuneration, but fortunately the matter was rectified in the second year. That helped to alleviate the problem, but it was not radical enough. 
 The Government boast, rightly in some respects, that the concept of foundation hospitals is a way of freeing the health service as primary care trusts have been freed by receiving 75 per cent. of funding to commission care locally. But I wish that the Government would be bolder and take a further step, which is the logical conclusion of their rhetoric and the intention behind foundation hospital trusts. I therefore hope that the Minister will accept the amendment or at least think further about what lies behind it and return to the matter at a later stage or in another place. I hope that he will recognise that the proposal is a way of redressing a significant problem in some parts of the country where the flexibilities that are already in the system do not accurately and realistically reflect what is happening on the ground. 
 It is genuinely difficult in Essex and the other home counties for a single person working in the health service, especially if they are relatively young and new to their career but want to make progress in it, to find affordable housing, particularly if they want to buy a property on a mortgage rather than renting, and the system is not helping them. As one of my hon. Friends said, those who live in the parts of the country where house prices are much lower are not affected to the same degree as those in the home counties. I hope that the Minister will give the amendment some clear thought and not dismiss it in an instance. 
 Mr. Hutton: I want to make three brief points in response to the debate, which we have had before. As many hon. Members have said, there is a familiar feeling to it.
 An obvious but important point to make about the amendment is that it is preposterous to suggest that NHS foundation trusts should or would even want to have a statutory right to ignore future national pay agreements when the vast majority of their staff will be employed on nationally negotiated terms and conditions of work. 
 Anyone who sat back and thought about that for a second would realise what an absurd proposition it was that NHS foundation trusts employed staff on those terms and conditions, but that the Bill, once enacted, would say that none the less the employer was specifically entitled to reject any issue arising under those national terms and conditions. That would be ridiculous and needs to be treated with complete derision. It is an absurd proposition. 
 Secondly, the hon. Member for Oxford, West and Abingdon rightly said that we needed to address this important issue. We have done so in the Bill. We have set out the freedoms that NHS foundation trusts will have. The proposal would not give NHS foundation trusts additional freedoms. They already have significant freedoms to be flexible about how they employ their staff. NHS foundation trusts have the power to employ staff. 
 The hon. Gentleman says it is right that we should set out our proposals. We have done so. We have our statutory duty of co-operation, which I would not dismiss quite as quickly as he did. We now have a proposition from the Conservative party about how we deal with the proposal: NHS foundation trusts can completely ignore national terms and conditions even though they employ staff on them and will do so under ''Agenda for Change''. That is one way of dealing with the problem, but it is an absurd way. However, we have not heard the hon. Gentleman's way of dealing with the problem. He has tabled no amendments to deal with what he rightly described as a genuinely difficult issue. 
 There is a certain mythology around the subject that rests on the fundamental misunderstanding that only the creation of NHS foundation trusts will somehow generate unfair competition and the poaching of staff. That is completely untrue. People need to get rid of their rose-coloured spectacles, which have dominated the debate on both sides to a very large extent. Far from being an artificial cap or arbitrary imposition on flexibility, ''Agenda for Change'' deals with the issues in a way that the Opposition have completely failed to understand. It is possible to go beyond the 30 per cent. premia if necessary. 
 The hon. Gentleman clearly has not read ''Agenda for Change''. I shall send him a copy, which he can peruse at his leisure. I believe that there is sufficient flexibility in it to deal with local problems of recruitment and retention. For the Committee's information, no applicant for foundation trust status 
 has told my right hon. Friend the Secretary of State that it wants nothing to do with ''Agenda for Change''. I do not anticipate that they will. 
 We should all get real about the issue. It is a hobby-horse, which has been used on this occasion as a rather crude instrument to attack the fundamentals of the policy. There is a fundamental misconception of the understanding of ''Agenda for Change'' and of the freedoms that the Bill gives to NHS foundation trusts to employ staff. There are no restrictions in the Bill on their ability to employ staff. The hon. Member for South-West Devon needs to have another look at the text of the proposed legislation. 
 The suggestion is completely misplaced on every count—in the amendment, in the lecture given by the hon. Member for Oxford, West and Abingdon, and in the Opposition's misunderstanding of ''Agenda for Change''. The amendment is not helpful: it was not designed to be. In the hon. Gentleman's correct analysis, it was designed to identify what he regarded as opposites. I do not believe that to be the case. 
 It is possible, as we have set out in the Bill, to encourage greater local flexibility, to have a better, more transparent national pay system, which we will have with ''Agenda for Change'', and to ensure as far as we can within the confines of the legislation that NHS foundation trusts have the proper approach to these freedoms. It is in no one's interest to have a ''beggar your neighbour'' approach to pay, with one part of the NHS robbing staff from another. That is completely ridiculous. There is a confined labour market; there are shortages in the recruitment of staff to the NHS, which is obvious to us all. However, when considering the proposal objectively or reasonably, one cannot say that the Bill contains anything that will exacerbate that difficulty. 
 Another canard that needs to be nailed is that NHS foundation trusts will somehow receive a secret bung of cash that they can use to top up pay and poach staff from elsewhere in the NHS. That is completely untrue. [Interruption.] I accept that it has not been suggested in this debate, but it has in others: that NHS foundation trusts will somehow have access to additional resources through the commissioning process. They will not, because of the national tariff and for the reasons that I set out earlier.

Evan Harris: I will accept that point if the Minister will accept that in the first instance NHS foundation trusts will be three-star trusts, which generally do not have the capacity constraints or the cash constraints that lead them to fail in the star rating system. It is not the hospitals or trusts with the huge deficits that are the candidates for foundation hospitals. It is not those such as the Oxford Radcliffe, which have spent huge amounts on building capacity. Three-star trusts start with an advantage because of the way in which the selection is made. Will the Minister accept that at least?

John Hutton: No, I certainly will not. It is not the case that one NHS trust receives additional or somehow unfair funding or resources that other trusts do not
 receive. They are funded on the same basis. It is interesting to consider three-star trusts, for example, and the range of communities that they serve. Some three-star performers are in very deprived areas, serving some of the poorest people in the country, and they do a brilliant job in terms of both clinical outcomes and financial management. The issue is financial management and probity. The way in which those organisations are run makes the difference. Three-star trusts are not given hidden bungs or unfair advantages.
 We have been round and round the houses, but there is nothing new in the proposal. There is no reason in principle, and there is certainly no reason in terms of the drafting of the legislation, for the amendments to be acceptable to any of my hon. Friends. For that reason, I hope that they will give them a wide berth.

Evan Harris: Will the Minister answer this question, which is the main one? How will clause 27 prevent a foundation trust that is short of, say, radiographers—I accept that this could happen already if there were freedom on pay; foundation trust status is not a requirement for it to occur—from advertising radiographer posts at significantly more than the going rate in the NHS in that region to capture a greater number? How will the provision work? If the Minister could explain that, perhaps he could satisfy the concerns expressed by hon. Members on both sides of the House.

John Hutton: I have attempted, clearly unsuccessfully, to do that on several occasions. Let me spell out the situation for the hon. Gentleman again. If the actions of an NHS foundation trust jeopardised the ability of neighbouring trusts to exercise their functions in delivering NHS care, it could be in breach of its statutory duty in respect of partnership. The independent regulator of NHS foundation trusts could intervene if that were so. The simple point is that there is a way to try to address the problems. We have tried to strike the right balance between freedoms and flexibilities and the overall integrity of the NHS. It is up to members of the Committee to decide whether that balance has been struck properly.
 What is completely bogus about the amendment is the suggestion that NHS foundation trusts would welcome the so-called freedom that it would give them, given that all the bodies are more than content, in view of the progress in ''Agenda for Change'' and the structure of that deal, to accept moving to NHS foundation trust status on the basis of implementing ''Agenda for Change''. There is no desire for the amendment among the applicants or, I believe, in the NHS. It harks back to the old days of the Tory approach to regulating the NHS, which Government Members should not endorse for one second.

Chris Grayling: I am not surprised by the Minister's response, and he will not be surprised to learn that I do not agree with him. I can see no possible benefit in not giving NHS management the proposed power. I am not in the slightest bit surprised that all the foundation trust management teams are not lining up in his office to say, ''Please get rid of 'Agenda for Change'''. That
 seems to be a good way of ensuring that one is not on the shortlist to go forward for foundation trust status. I do not doubt for a moment that most management teams, most of the time, would prefer to operate within agreed pay limits, because that takes away work for them. However, that does not mean that they should not have the freedom to set pay rates to meet their local needs. If they decide that the framework that has been created for them is not right for their local needs, they should have the power to adapt what they do to local circumstances. The frameworks that the Government are putting in place to enable these bodies to achieve that are simply unnecessary. Ultimately, they should have the freedom to set pay rates if they need to do so at any future point. I gave the Minister a specific example of a situation in which, frankly, an NHS chief executive needs to go out and headhunt staff to fill a gap.
 That said, time is moving on, and I shall not force the amendment to a vote at this time. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Amendment made: No. 256, in 
clause 18, page 8, line 15, leave out 'in England'.—[Mr. Hutton.]

Evan Harris: I beg to move amendment No. 416, in
clause 18, page 8, line 16, at end insert ', provided that the trust assumes vicarious liability for actions undertaken on their behalf by staff.'
 I shall be brief, as I hope for an answer tonight. The amendment was suggested by the Royal College of Midwives in order to deal with a potential problem. The college obviously has an interest in the issue of vicarious liability. The amendment would put a rider on the ability to employ staff. It is a probing amendment. 
 The Minister will know of the problems in obstetrics and gynaecology and the resulting litigation bill. The question was raised whether foundation hospitals would take on vicarious liability. At present, NHS trusts assume liability for actions undertaken by staff on behalf of the trust. The trust takes out insurance to cover the cost of litigation, which means that the cost of claims does not have to be met by NHS employees. Indeed, the NHS litigation authority takes on responsibility. I checked that question with that authority, but the person to whom I spoke was not certain of the answer. I hope that the Minister will take the opportunity to clarify that there will be no difference for trusts; it would be a significant added burden for them if it was not done automatically, and that would be a risk for the NHS.

John Hutton: I hope that I can reassure the hon. Gentleman. The common law already provides that employers are liable for the actions of their employees when acting in their capacity as employees. NHS foundation trusts will not be in a different position to NHS trusts. The amendment is completely unnecessary. The general position is that common law principles are referred to in legislation only when it is
 intended to modify them or disapply them. The amendment has no such intention, and is therefore likely to have the opposite effect to the one intended.
 I give the hon. Gentleman the absolute assurance that employees of NHS foundation trusts will be covered by the common law duty for vicarious liability in exactly the same way as other NHS employees.

Evan Harris: Will the relationship between the NHS foundation trust and the NHS litigation authority be the same as it is currently for NHS trusts?

John Hutton: Yes. NHS foundation trusts will be able to access schemes administered by the NHS litigation authority in exactly the same way as NHS trusts.

Evan Harris: In the light of that, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 18, as amended, ordered to stand part of the Bill.

Clause 19 - Information

Chris Grayling: I beg to move amendment No. 23, in
clause 19, page 8, leave out line 24 and insert 'the regulator requires'.

Peter Atkinson: With this it will be convenient to discuss the following:
 Amendment No. 193, in 
clause 19, page 8, line 24, at end insert 
 'such information to be less in aggregate than that required of the trust before it became a foundation trust'. 
Amendment No. 457, in 
clause 19, page 8, leave out lines 25 and 26. 
Amendment No. 458, in 
clause 19, page 8, line 28, at end add 
 'subject to such request not being supplementary to information currently provided under the existing powers of the Secretary of State.'.

Chris Grayling: The amendment would remove a power that we believe is unneeded. Why does the Secretary of State need to specify to the regulator what should be the information disclosure requirements of the foundation trust? Why should it not be a matter for the regulator and the trust to work out together? The Secretary of State does not have a great track record when it comes to setting appropriate and sensible levels of bureaucracy and paperwork. We see no benefit in inserting the Secretary of State into that relationship.
 The amendment would remove the phrase 
''the Secretary of State specifies to the regulator''
 and insert the words ''the regulator requires''. That would be a prudent amendment: the regulator would still be able to extract from foundation trusts information that was appropriate for the regulator to use when making his report to Parliament and when ensuring that NHS foundation trusts make public enough information about their financial and constitutional affairs, and about their performance in 
 the services that they deliver. There is no possible reason to allow the Secretary of State to decide what the regulator needs; surely that can be done by the regulator himself. 
 Amendments Nos. 457 and 458 offer two options to the Government. They are designed to make a similar contribution and are to some extent mutually exclusive, but I hope that the Minister will accept the principle in one of them. 
 Our problem is with subsection (1)(b), which says that an authorisation 
''may require an NHS foundation trust to disclose other information to the regulator.'' 
That is surely taken into account in paragraph (a), so there is unnecessary duplication. The provision does not add anything to the Bill. 
 The Bill also provides: 
 ''The regulator may require any other health service body to disclose any information to him which he requires for the purposes of his functions.'' 
Why should we give the regulator the power to ask any other health service body to deliver any information that the regulator decides that he requires? We should not give the regulator the power to seek information from NHS bodies other than foundation trusts over and above the information that the Secretary of State already requires to be provided to Government. 
 We are simply considering the status quo, and it is perfectly reasonable for the regulator to ask the same question of other organisations in pursuit of his judgment about, for example, the nature of an authorisation that should be given. It is also reasonable for the regulator not to have powers to request information over and above the existing powers of the Secretary of State. 
 These are tidying-up amendments, designed to reduce bureaucracy in a system in which there is too much. I hope that they are not controversial and that, if the Minister does not accept the substance, he can accept the direction and will acquiesce with steps to ensure that the provision of information is carried out with as little impact as possible on the operational side of the trust's activities.

Andrew Lansley: I should like to express the apologies of my right hon. Friend the Member for North-West Hampshire for not being able to be present to speak to amendment No. 193.
 The amendment is fairly straightforward and self-explanatory. If the intention of the legislation is to lift regulatory burdens and compliance requirements on foundation trusts to help them to do their job, that should be carried forward into clause 19(1)(a). Although the NHS foundation trusts should comply with the general requirements on the NHS to provide information for audit and other purposes, the aggregate of that information should be less than was required of them before they became foundation trusts. That is the burden of the amendment. 
 Mr. Hutton: I cannot accept any of the amendments, and I shall set out the reasons why. Clause 19 serves two distinct purposes, the first of which is to ensure that the Secretary of State has the information that he needs to set standards, allocate resources and plan provision of health care across the NHS in line with his responsibilities under the National Health Service Act 1977. That means collecting information from all parts of the NHS, including NHS foundation trusts, for national policy development, funding decisions, manpower planning and tracking performance throughout the NHS. Those matters go further than the regulator's specific functions, and it would be inappropriate for the independent regulator to decide what the Secretary of State should have. That is why I am unable to accept amendment No. 23 and the consequential amendment No. 457.
 However, it is true that we do not want to replicate existing data collection, and to the extent that amendment No. 193, tabled by the right hon. Member for North-West Hampshire, is designed to minimise data collection, I have a great deal of sympathy with it. However, we want to consider information requirements from NHS foundation trusts as a subset of that required from other NHS bodies. We want to continue the work that is under way to streamline further the information that is required to be sent in to the centre.

Gary Streeter: We are all concerned about the quantity of reporting requirements imposed on hospitals at present, and we hoped that those requirements would be lighter under the foundation trusts regime. Will the Minister assure me that the amount of information required by the Secretary of State under the provision and the format in which it is required will be the same as that required by the regulator, so that the hospital trusts will not have to produce the information in two different ways, thereby increasing cost, time spent and bureaucracy?

John Hutton: Obviously, that would be an ambition to which we would sign up. In practice, there is no doubt that the range of information required from foundation trusts will be narrower in scope than that required from NHS trusts, which will reflect the difference in performance management responsibilities over the actions of NHS foundation trusts. As the hon. Gentleman knows, that will no longer be the direct responsibility of the Department.
 The second purpose of clause 19 is to ensure that the regulator is able to obtain the information that he needs to set the terms of the authorisation, to monitor NHS foundation trusts' compliance with the terms of authorisation and statutory obligations, as well as to investigate breaches. In so doing, the independent regulator may need access to information from sources other than NHS foundation trusts. For example, he may need information from primary care trusts on their commissioning needs, or on the services that they have received from NHS foundation trusts. 
 We do not expect the independent regulator routinely to collect data from bodies other than NHS foundation trusts, nor that the provision of that 
 information will place a significant burden on them. He is most likely to require specific information in cases in which he needs to take specific action, such as varying the terms of authorisation or investigating breaches. It is true that the information that he requires may differ from that submitted to the Secretary of State, and that is why amendment No. 458 is also not acceptable. I cannot accept amendments that would restrict my right hon. Friend the Secretary of State's ability to carry out his duties with respect to the NHS, or would restrict the regulator's ability to monitor compliance with the terms of authorisation. I am afraid that this group of amendments would do both. 
 Taking a more bipartisan approach, I share some of the wider concerns that were expressed. The Secretary of State and I do not intend to duplicate or set up parallel systems of bureaucracy related to NHS foundation trusts. That would run counter to our ambitions for foundation trusts, and to the way in which we would like to see the NHS of the future develop.

Chris Grayling: I thank the Minister for those points of clarification. May I raise one further area of concern? The regulator sits fairly and squarely in the foundation hospitals camp, but he is being given the right to seek information from primary care trusts, who are the buyers of the service. The Minister will be aware that acute hospital trusts and primary care trusts sometimes end up in significant disputes over financial matters. It therefore seems curious that the regulator may be given powers of access to information from the primary care trust that go beyond those held by the Secretary of State today. Will the Minister assure me that such a situation could not arise, and that there is nothing that the Secretary of State would be precluded from seeing relating to the way in which the primary care trusts have been set up to which the regulator, as someone who works with the supplier of services to the primary care trusts, would have access?

John Hutton: I would not rule out the possibility that that could be the case. However, the hon. Gentleman is wrong in his characterisation of the regulator as being in the NHS foundation trusts camp. I am sure that hon. Members on both sides of the Committee would accept that it is appropriate and necessary for the regulator, if he is to do his job properly, to have the right to seek information from primary care trusts, because they are significant partners in the whole exercise of improving NHS services through NHS foundation trusts. It would be bizarre if the regulator were not able to approach primary care trusts to request information, because that would impede his ability to monitor compliance with the terms of authorisation and the general progress made by the foundation trust.
 We are not creating a Gestapo: the provision is not an inappropriate manifestation of unnecessary powers. We are trying to find the right balance between giving the regulator the tools that he needs to do the job properly and ensuring that my right hon. Friend 
 the Secretary of State is still able to take an overview of performance right across the NHS, including the performance of NHS foundation trusts. I am sure that the Bill, as currently drafted, strikes that balance, and it is for that reason that I am not able to accept the amendments that the hon. Gentleman has tabled.

Chris Grayling: I am grateful to the Minister for that clarification. It is conceivable that a dispute could arise between a foundation trust and a primary care trust over a significant amount of money and, because of the consequential impact on the finances of the foundation trust, the regulator would feel the need to intervene and take a close interest? Under these powers the regulator would also have the right to examine the other side of the argument and inspect the books. I am slightly anxious about the implications of that when there are genuine disputes between two NHS bodies. That said, I am happy not to pursue the issue. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 19 ordered to stand part of the Bill.

Clause 20 - Entry and inspection of premises

Andrew Lansley: I beg to move amendment No. 194, in
clause 20, page 8, line 31, at end add
'such an inspection to be coordinated with the CHAI'.
 I move the amendment on behalf of my right hon. Friend the Member for North-West Hampshire. Once again it is a practical suggestion in the same spirit as amendment No. 193. The intention is to relieve the burdens of compliance on foundation trusts and permit them to do their tasks with the minimum amount of interference. Although it is understood that the authorisation might require the regulator to enter and inspect premises of an NHS foundation trust, the requirements of the Commission on Health Audit and Inspection and the regulator should be co-ordinated to ensure that what is happening in the foundation trust is examined once rather than twice in order to minimise interference with management. I hope that the Minister can accept that practical suggestion.

John Hutton: I am delighted to accept—[Hon Members: Oh!]—the hon. Gentleman's argument, but not necessarily his amendment. I agree that there should be proper and effective co-ordination. However, the regulator needs these separate and independent powers of inspection. The argument for co-ordination is well made. I simply refer the hon. Gentleman to clause 47(8), which requires the regulator and CHAI to co-operate in the exercise of their respective functions under part 1 of the Bill. The point that the hon. Gentleman seeks to make has already been acknowledged in a later part of the Bill.
 Mr. Lansley: I am grateful for the Minister's response and for drawing my attention to that part of the Bill. On the understanding that it will be used in that respect, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 20 ordered to stand part of the Bill.

Clause 21 - Fees

Simon Burns: I beg to move amendment No. 22, in
clause 21, page 8, line 34, at end add
'subject to the regulator only having the power to set fees at a level that recovers his annual running costs apportioned across the total number of NHS foundation trusts.'.
 I shall be brief as this is a very straightforward amendment. It would add a proviso that the fee should be set at a level that restricts it to the recovery of the annual running costs across the board. I hope that the Minister will agree with the philosophy behind the amendment, even if he feels that it is unnecessary to put it in the Bill. There have been complaints over a number of years that levels of fees imposed—usually inspection fees—have increased significantly above the rate of inflation. Although no one would disagree that the cost of the work done should be recoverable, to set a fee above that level, which might be construed as having an element of profit in it, would be unwelcome and unnecessary. I hope that the Minister can at least give the Committee a commitment that he will expect the fee levels to be restricted to the costs of the work carried out, and not an opportunity for a future Chancellor of the Exchequer to use this as a system of generating additional funding.

Gary Streeter: I hope that my hon. Friend the Member for West Chelmsford does not mind me asking a couple of questions in support of his argument. This is an interesting amendment to an interesting clause. I want to probe the Minister a little. Will the fees paid to the regulator replace any fees that hospitals currently pay to the centre? My concern throughout the Bill has been that rather than setting the hospital trusts free, we might be adding bureaucracy and costs to them.
 Is it the case that the entire cost of running the regulator's office will come from the foundation trust? Perhaps it says so in the guide and I have missed it. Can the Minister confirm that that is the intention, or will there be additional money from the centre to run the office; top-up fees to pay for part of the services or something of that nature? 
 Will the Minister give a ballpark figure for the hospital trusts being set up next year? Some thought must have gone into the matter. What kind of annual fee are we talking about; £1,000 a year, £10,000 a year or £100,000 a year? I have no feel for the figures from the document in front of me. Has the Minister given 
 thought to the matter, have there been discussions and do the applicant trusts know the fee they are likely to pay?

John Hutton: I am grateful to the hon. Member for West Chelmsford for tabling amendment No. 22. I will try to give him the assurances he seeks. It is not the case that the power to set fees could be used as a hidden form of taxation in the NHS. As he will know, the independent regulator has no power under the Bill to generate or distribute surplus funds to anyone. That means that as a matter of law the independent regulator will not be able to charge fees that exceed the total expenses of his office.
 The hon. Member for South-West Devon asked a number of intriguing questions. He will not be at all surprised, because he has done a job like this himself, that I am not in a position to give him any detailed estimates about the fees the regulator might charge. That will depend at least in part on the number of NHS foundation trusts. As he knows, the Bill says that the fee must be reasonable. By law, that prevents the independent regulator from charging fees that exceed his expenses. 
 The hon. Gentleman asked me indirectly when we intend to move to a situation where fees are levied by the independent regulator. I am not sure that I can be specific about that point today. He will know that separate commencement orders can apply to different sections of the Bill. We will not commence the provisions in clause 21 until it is appropriate to do so. We have made it clear that the running costs of the independent regulator will be met by my right hon. Friend the Secretary of State for the foreseeable future.

Simon Burns: In the light of the Minister's assurance, which I warmly welcome, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 21 ordered to stand part of the Bill.

Clause 22 - Trust funds and trustees

Simon Burns: I beg to move amendment No. 459, in
clause 22, page 8, line 36, leave out from beginning to second 'for' and insert
 'An NHS foundation trust may appoint trustees which the regulator can approve'.
 Again, I can be brief. In many ways this is a probing amendment. As hon. Members will see, clause 22 deals with the appointment of trustees for an NHS foundation trust to hold property on trust. I do not think that anyone in the Committee would regard that as an unusual or unreasonable proposition. The amendment seeks to change significantly who appoints the trustees, from the Secretary of State to the NHS foundation trust. Given that it is the foundation trust's property, it would be a reasonable proposition for the foundation trust to make the appointment and to have some check on the power to allow the regulator to approve the trustees. 
 The NHS foundation trusts would appoint the trustees and they would be subject to the approval of the regulator, which is more logical and fair than for the Secretary of State to do so. Unless there is some complicated legal reason under existing law, I am not sure why the Secretary of State has to have a role. The important thing is that there are trustees; given that one concedes that that is crucial, surely it would be better for the foundation trust to make the appointments, subject to the approval of the regulator, who will be independent of the foundation trust, rather than the Secretary of State.

John Hutton: I understand the hon. Gentleman's argument that the Secretary of State should not be involved in the appointment of trustees for NHS foundation trusts. My right hon. Friend currently makes appointments of charitable trustees to NHS trusts. I reassure the hon. Gentleman that the appointments function will be delegated to the NHS Appointments Commission, as it is now.
 However, safeguards are needed to ensure that the charitable funds held by NHS foundation trusts are properly administered. That includes ensuring that the charitable assets are used to provide benefits for patients and for the purposes for which they were intended. For all but relatively small funds, that means that there should be independently appointed trustees to administer the funds and the appropriate body to appoint the trustees is the NHS Appointments Commission, which has the necessary expertise and independence. I give the hon. Gentleman my absolute assurance that it is not a back-door way in for my right hon. Friend to control the assets of NHS foundation trusts. The Secretary of State does not have a direct role in that regard. The proposal is a continuation of existing arrangements, with the added bonus of delegating the appointments function to the NHS Appointments Commission.

Simon Burns: I am grateful for the Minister's explanation, which I accept. I assure him that I did not think that the proposal was a Machiavellian way of giving the Secretary of State back-door powers to control property. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 257, in 
clause 22, page 8, line 39, leave out 'in England'.—[Mr. Hutton.] 
 Clause 22, as amended, ordered to stand part of the Bill.

Clause 23 - Failing NHS foundation trusts

Simon Burns: I beg to move amendment No. 412, in
clause 23, page 9, line 30, leave out 'subsections (3) and' and insert 'subsection'.

Peter Atkinson: With this it will be convenient to discuss the following:
 Amendment No. 407, in 
 clause 23, page 9, line 30, at end insert— 
 '(1A) Where a notice under subsection (1) has been issued to an NHS foundation trust by the regulator, the NHS foundation trust may make an appeal in writing to the regulator.' 
 Amendment No. 408, in 
clause 23, page 9, line 34, leave out subsection (3).

Simon Burns: If the Committee will forgive me, I will deal with amendments Nos. 407 and 408. Although amendment No. 412 comes before the others, it is incidental to amendment No. 407, which is a probing amendment in one respect but which raises an important issue.
 Clause 23 refers to failing NHS foundation hospitals. Rightly, the Government recognise that this is not an ideal world and thus there may be circumstances in which a foundation trust fails and needs to be taken over. It would be irresponsible of the Government not to have a clause to deal with such an eventuality. However, I am slightly worried that clause 23(1) lays down the rules and procedures that the regulator should adopt if he is satisfied that an NHS foundation trust contravenes or fails to comply with any term of its authorisation, and so on. It states what the regulator can do by issuing a notice to the trust to take action as outlined in the Bill. 
 Although that is a logical and reasonable course of action, I am concerned that there does not seem to be any opportunity in the procedures—unless I am mistaken or it has been hidden later in the Bill—for the foundation trusts to explain their actions to the regulator if they feel that it is warranted, or to appeal against any findings or instructions by the regulator. I should have thought it reasonable for a foundation trust to have that power. 
 The regulator may not agree with a foundation trust, having heard its explanation and justification of why it believes that he was incorrect or unfairly using his powers. However, the trust should have the opportunity to make its case and to try to persuade the regulator that he is wrong; or that it may not yet be the appropriate moment for him to exercise his powers because it has seen the errors of its ways or understood that it must improve its compliance with the original authorisation. I will be interested to hear the Minister's response. 
 Amendment No. 408 is a probing amendment, because subsection (3) reads: 
 ''The regulator may require the trust, the directors or the board of governors to do, or not to do, specified things or things of a specified description within a specified period.'' 
I am not a lawyer, but I suspect that that is correct legal terminology and a necessary catch-all expression; I was going to say that it covered a multitude of sins, but that is probably the wrong expression. However, as I do not fully appreciate what the provision is getting at, I should be grateful if the Minister said what are the 
''specified things or things of a specified description'' 
and what is a ''specified period''? Who specifies those things? What restrictions or safeguards are put on the specification, and who checks that the specified things are in order? I am sure that there is a simple answer to those questions, and any lawyers on the Committee 
 will probably have guessed it before the Minister starts his explanation. However, us humble non-lawyers would appreciate the benefit of his legal training.

Gary Streeter: This will be a brief point in an attempt to be helpful. When I first read the clause, I thought that I misread it, so I reread it several times. I thought that it was trying to say something that it is not trying to say; that when a regulator has the opportunity to serve a notice on a hospital trust, he should first serve a notice specifying the breach and giving a reasonable period in which the breach should be rectified. Only then could the regulator move on to use some of the more draconian and incisive powers in the clause.
 However, the clause, as I now read it, says that if the regulator believed that a foundation trust was contravening some of its terms and conditions or trust authorisation, he could move straight to serving a notice to remove all board directors and impose interim directors. That might be the appropriate action, but it might also be heavy-handed and too precipitate. Would it not be better to build into the clause an obligation on the regulator to serve a notice to specify the breach and give the trust the opportunity, within a reasonable time frame, for that breach to be rectified before he can move on to the step of intervention as detailed in the clause?

John Hutton: Under normal circumstances, the independent regulator will have no reason to become directly involved in NHS foundation trust affairs. However, he clearly needs a range of powers at his disposal to ensure that, if an NHS foundation trust significantly breaches its terms of authorisation or statutory obligations, he can take appropriate action to rectify the situation to protect the interests of NHS patients. The words ''significantly breaches'' are important in this context. Simply removing governors or directors under clause 24(4) or dissolving the trust under clause 25(5)—which would broadly be the effect of the hon. Gentleman's amendment—would be more draconian, to use the term of the hon. Member for South-West Devon, than would be required; nor would it necessarily help to bring an NHS foundation trust back in line with its terms of agreement.
 For that reason, the regulator of an NHS foundation trust should have a wider range of powers—these are contained in clause 23(3)—to require the foundation trust to take specific action to remedy the failure. That is also why amendments Nos. 408 and 412 should be rejected. 
 The hon. Member for West Chelmsford asked me to give an example. The independent regulator might require that, on the basis of a recommendation from CHAI, the NHS foundation trust meet, for example, certain quality standards within a set time period. He might also ask CHAI to carry out additional reviews or inspections. If the amendments have been tabled with a view to ensuring that the regulator does not interfere indiscriminately in the running of an NHS foundation trust, I can assure the hon. Gentleman that 
 the regulator will deal proportionately and objectively with such trusts. In broad terms, I would characterise the regulation of NHS foundation trusts as light touch. As I said, the regulator's powers to intervene under clause 23 will be limited to where failure is significant. 
 On amendment No. 407 and the appeal to the regulator, clearly he is under a general duty to act reasonably and proportionately. He will act independently and objectively in his dealings with NHS foundation trusts. Any action that he takes must be proportionate and must take account of all available evidence. Evidence from the NHS foundation trust itself would therefore always form a natural part of his decision whether to intervene. For example, if a CHAI report indicated a potential breach of the terms of authorisation, the NHS foundation trust would have an opportunity to prepare a response that the independent regulator would consider alongside the CHAI report in deciding whether any action was appropriate. 
 As with the Secretary of State for Health, there is no formal mechanism for appeal against the independent regulator's decisions, but as the hon. Member for South-West Devon knows, the independent regulator would clearly be subject to a judicial review in relation to his decisions.

Simon Burns: I am grateful to the Minister, because I thought he made a significant and helpful point about an adverse CHAI report. I also heard what he said about judicial review, which is the ultimate weapon that one would hope to be able to avoid almost at all costs. Could he have given other examples than CHAI, where the foundation trust would not have an opportunity to make representations to the regulator?

John Hutton: I very much hope not because I believe that the process that we envisage would involve the regulator discussing concerns with the NHS foundation trust, sharing the concerns that have arisen from whatever source and clarifying the action that needs to be taken to resolve them. I do not accept that the first port of call would be the serving of a statutory notice to deal with concerns about whether an NHS foundation trust was acting within the terms of its authorisation. That would be an inappropriate way for the regulator to proceed and I do not believe for a second that that is how he would want to act.
 In all those cases, I do not want to be prescriptive and produce a list of situations. I am sure that the hon. Gentleman will understand that I am not trying to be coy. I do not believe that in these cases it is terribly helpful. Again, we are trying to give the regulator the tools that he needs to do his job. That is why he needs the general power in subsection (3). However, I want to reassure the hon. Gentleman that the regulator has an overarching duty to act fairly and reasonably: any decision or determination by him that affected an NHS foundation trust could be the subject matter of a judicial review. 
 Mr. Burns: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 23 ordered to stand part of the Bill. 
 Clause 24 ordered to stand part of the Bill.

Clause 25 - Dissolution etc.

Simon Burns: I beg to move amendment No. 409, in
clause 25, page 10, line 21, leave out subsection (2).
 Again, this is very much a probing amendment to elicit more information. Subsection (2) states: 
 ''Before the powers conferred by this section are exercised, the regulator must consult prescribed persons about prescribed matters.'' 
It then explains that 
 '''Prescribed' means prescribed by an order.'' 
That order will presumably be issued by the regulator and I should be grateful if the Minister would give the Committee a little more background information so that it has a greater understanding of exactly which prescribed persons will be consulted about what sort of prescribed matters.

John Hutton: Again, I am grateful to the hon. Gentleman because I presume that this is a probing amendment. As he said, the Bill provides for secondary legislation to prescribe the process for dissolution, including requirements on the regulator to consult when making his decision about the future of an NHS foundation trust. It is expected that the consultation requirements will cover a range of interests, including bodies with responsibility for NHS services: the strategic health authority obviously, primary care trust commissioners, patient forums, the oversight and scrutiny committee of a local authority, staff representatives, the Secretary of State, significant creditors, the governors if not removed under clause 23(4), and members of the NHS foundation trust. It is right that the independent regulator should consult those groups so that they have the relevant evidence required in coming to such an important decision about the future of the trust and that is why the amendment would not materially benefit the Bill, although I understand the intention behind it. I hope that the hon. Gentleman is satisfied with my assurance about the breadth and depth of the consultation.

Simon Burns: In the light of the Minister's response, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Simon Burns: I beg to move amendment No. 410, in
clause 25, page 10, leave out line 29.
 Again, this is a probing amendment, which would remove line 29 so that an order made for dissolution of a foundation trust and the transfer of property or liabilities to a number of named groups or individuals would not include the Secretary of State. I assure the Minister that this is not a vendetta against the Secretary of State. The reason for probing is that the 
 Bill outlines the measures to be taken to deal with a foundation trust that is failing or when it is necessary to go to the extreme of dissolving a foundation trust, and I am wondering why those properties or liabilities should be transferred to the Secretary of State. It may be logical to transfer them to another foundation trust, a PCT or NHS trust because, presumably, they would then be able to move forward and rectify the failings that led to the dissolution. However, what exactly would the Secretary of State do if those properties or liabilities were transferred to him? When the Minister replies, will he also tell us whether there are any restrictions on what a Secretary of State could do in what I suspect would be extremely rare circumstances, if they ever occurred?

John Hutton: In the event that an NHS foundation trust was dissolved, our intention is that the process should be managed in a way that ensures as little disruption of services to patients as possible. The specific arrangements in individual cases would depend on the circumstances of the failed NHS foundation trust and it is important that the Secretary of State has the flexibility to make any arrangements necessary to secure NHS services. That might include transfer to the Secretary of State when no suitable alternative could be identified and it is desirable to include flexibility in the arrangements. I am sure that my right hon. Friend will be glad to know that the hon. Gentleman is not pursuing a vendetta against him. It is possible that the Secretary of State will make arrangements for the foundation trust to be managed by one of the other bodies identified in the clause.

Gary Streeter: I have been puzzling about this. If a foundation trust fails, there is a dissolution—I hope that that will never happen—there are unmet liabilities and the assets are transferred as anticipated in the clause, who will pick up the tab for the unmet liabilities? Would the Government do that? Would it fall on the members, or would the creditors simply go unpaid?

John Hutton: I hope that we might have an opportunity to discuss some of those issues when we come to clause 24 and the failure regime that would need to be—[Interruption.] Yes, clause 24. Oh dear, we have passed clause 24. The hon. Gentleman was not paying attention.

Gary Streeter: The Minister was not paying attention.

John Hutton: No, I knew precisely what was going on. The issue would be addressed in discussions on clause 24. Given that we have passed that clause, it might help the hon. Gentleman if I write to him and other members of the Committee setting out those arrangements.

Simon Burns: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Simon Burns: I beg to move amendment No. 411, in
clause 25, page 10, line 35, leave out subsection (7).
 Again, this is a probing amendment through which I seek guidance on exactly what subsection (7) is designed to do. I am not a lawyer and so may have misunderstood it, but I understand that the clause basically deals with the dissolution of a foundation trust. Subsection (7), however, says: 
 ''Where the regulator refuses to give an authorisation to a public benefit corporation''. 
Unless I have completely misunderstood it, which may well be the case, it seems to deal with the situation before a foundation trust is up and running as a foundation trust. If that is the correct interpretation, why does the regulator have any powers? Presumably, it is still an NHS trust that has been refused authorisation to become a foundation trust for whatever reason. Surely that is the end of the matter. I presume that the NHS trust then carries on in its original guise. Will the Minister correct me in my misunderstanding, or give an explanation of the thinking behind the subsection?

John Hutton: Essentially, we are dealing with a situation in which the public benefit corporation has not been authorised as an NHS foundation trust, so it has not started to deliver NHS services. Following the incorporation of a public benefit corporation, the regulator may not be satisfied that it could provide NHS services. That is constituted in accordance with schedule 1 to the Bill. In such cases, the regulator will not give an authorisation to the corporation to become an NHS foundation trust. In those circumstances, the clause means that the public benefit corporation would then be dissolved, although the regulator would not initiate that without proper discussion with the corporation.
 We have identified that there should be a mechanism for the dissolution of public benefit corporations that will not be authorised to become NHS foundation trusts. Without the clause, they would exist in perpetuity, which would not be helpful given that they could not do anything. This is simply a technical measure designed to ensure that a public benefit corporation that is not authorised can be wound up expeditiously.

Simon Burns: I am grateful for the Minister's clarification. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 25 ordered to stand part of the Bill. 
 Schedule 3 agreed to.

Clause 26 - Sections 23 to 25: supplementary

Amendment made: No. 150, in 
clause 26, page 11, line 1, leave out 'or 24'.—[Mr. Hutton.] 
Clause 26, as amended, ordered to stand part of the Bill. 
 Clauses 27 and 28 ordered to stand part of the Bill.

Clause 29 - Patients' forums

Evan Harris: I beg to move amendment No. 229, in
clause 29, page 11, line 25, leave out subsection (2) and insert—
 '(2) In subsection (1) of section 15 (establishment of Patients' Forums) after paragraph (b) there is inserted ''and
 (c) each foundation trust.''.'.

Peter Atkinson: With this it will be convenient to discuss the following:
 Amendment No. 230, in 
clause 29, page 11, line 32, after '(2)', insert 
 'in paragraph (c)(ii) after ''NHS trust'', there is inserted ''or foundation trust'' and'. 
Amendment No. 231, in 
clause 29, page 11, line 35, at end add— 
 '(5) In section 16 (additional functions of PCT Patient's Forums) in subsection (4)(c) after ''NHS trusts'', there is inserted ''and foundation trusts,''. 
 (6) In section 19 (supplementary)— 
 (a) in subsection (2)(k) after ''by an NHS trust,'' there is inserted ''a foundation trust,''; 
 (b) in subsection (2)(p) after ''by NHS trusts,'' there is inserted ''foundation trusts,''; and 
 (c) in subsection (4)(a) after ''for each NHS trust,'' there is inserted ''and foundation trust''.'.

Evan Harris: We have already discussed patient forums and it seems ridiculous that they cannot exist in foundation trusts.
 That must be the briefest speech in support of any amendment.

Simon Burns: I want to echo the words—

Evan Harris: On a point of order, Mr. Atkinson. I was expecting to hear the question put.

Peter Atkinson: If the hon. Gentleman reads Hansard tomorrow, the question will have been put.

Simon Burns: I just wanted to add to what the hon. Member for Oxford, West and Abingdon said. It seems extraordinary that patient forums will not apply to foundation trusts given the rhetoric that Government Ministers came up with at the time. They have abolished the community health councils only to end up with what is a deeply unsatisfactory situation. In addition, for those areas of the country where patient forums will apply, there will be a hiatus of three months.
 It being Seven o'clock, the Chairman put the Question necessary under the terms of the programme resolution to complete the business. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 14.

Question accordingly negatived. 
 Clause 29 ordered to stand part of the Bill. 
 Clauses 30 to 32 ordered to stand part of the Bill. 
 The Chairman then proceeded to put forthwith the Questions on amendments, moved by a member of the Government, of which notice had been given, to schedule 4, and the further Questions necessary to complete the proceedings on those clauses. 
 Schedule 4Amendments relating to NHS foundation trusts

Amendments relating to NHS foundation trusts

Amendments made: No. 258, in 
schedule 4, page 101, line 17, at end insert— 
 'The House of Commons Disqualification Act 1975 (c.24) 
 18A The House of Commons Disqualification Act 1975 is amended as follows. 
 In Part 3 of Schedule 1 (disqualifying offices), there is inserted at the appropriate place— 
 ''Chairman or other nonexecutive director of an NHS foundation trust.'''. 
No. 260, in 
schedule 4, page 110, line 18, at end add— 
 'The Community Care (Delayed Discharges etc.) Act 2003 (c.5) 
 125 The Community Care (Delayed Discharges etc.) Act 2003 is amended as follows. 
 In section 1 (meaning of ''NHS body'' and ''qualifying hospital patient''), in subsection (1), in paragraph (a) of the definition of ''NHS body'', after ''trust;'' there is inserted— 
 ''(ab) an NHS foundation trust;''.'. 
 —[Mr. Hutton.] 
 Schedule 4, as amended, agreed to. 
 Clauses 33 to 35 ordered to stand part of the Bill. 
Adjourned accordingly at three minutes past Seven o'clock till Wednesday 4 June at five minutes to Nine o'clock. 
Atkinson, Mr. Peter 
 (Chairman) 
 Anderson, Janet 
 Bailey, Mr. 
 Blears, Ms 
 Burnham, Andy 
 Burns, Mr. 
 Burstow, Mr. 
 Calton, Mrs. 
 Casale, Roger 
 Dowd, Jim 
 Fitzpatrick, Jim 
 Gillan, Mrs. 
 Grayling, Chris
 Hall, Mr. Mike 
 Harris, Dr. Evan 
 Hepburn, Mr. 
 Hutton, Mr. 
 Jones, Mr. Jon Owen 
 Lansley, Mr. 
 McCabe, Mr. 
 Pound, Mr. 
 Russell, Ms Christine 
 Streeter, Mr. 
 Ward, Claire 
 Young, Sir George